This paper examines the conversion of Indonesias natural forests to timber and tree crop plantations, notably oil palm. The principal aims are to understand the impact of this process on natural forest and on forest-dwelling people, and to establish whether past and present policies governing this process are meeting their objectives. The key findings of the study are: (1) timber plantation development policies legitimate the degradation of natural forests; (2) subsidies are ultimately unnecessary for the development of timber plantations; (3) tree crop plantation developers request more land than they need to obtain added profits from the timber on lands to be cleared; (4) overlapping and chaotic forest land use classification systems work to the benefit of private plantation developers at the expense of the rights and livelihoods of forest-dwelling people; and (5) resolution of these problems is hampered by the persistence of the governments top-down approach and non-recognition of traditional land use rights. It is recommend that: remaining natural forests on conversion forest lands be reclassified as permanent forests; plantation development take place only on unproductive production forest lands; and forest land use redistribution be devolved to the local level.